Close Brothers has expressed increased frustration with the City watchdog after being compelled to nearly double its provisions for the motor finance scandal.
The FTSE 250 lender, which had previously earmarked £165m, boosted its provisions by an additional £135m following the Financial Conduct Authority’s unveiling of its industry-wide redress scheme last week, as reported by City AM.
However, the bank criticised the regulator’s interpretation of the Supreme Court ruling in August.
The group stated: “[Close Brothers] does not believe the redress methodology proposed by the FCA appropriately reflects actual customer loss or achieves a proportionate outcome.”
It further noted that the FCA’s approach to assessing “unfairness” did not align with the top Court’s ruling in August.
The Supreme Court sided with lenders on two out of three cases relating to the car-misselling saga, but upheld the case of one claimant under the grounds their 55 per cent commission was “unfair.”
Nevertheless, the FCA has set the threshold for its redress – where an estimated 14.2m agreements are eligible – at 35 per cent.
The FCA anticipates the scheme will cost £11bn, which is at the lower end of previous estimates ranging from £9bn to £18bn.
A spokesperson for the FCA stated: “Many motor finance lenders did not comply with the law or the rules. It’s time their customers get fair compensation.
“Recent court judgments show that liabilities exist no matter what. We believe our scheme is the best way to settle the issue for both consumers and firms, and alternatives would be more costly and take longer.”
The regulator added: “We recognise not everyone will get everything they would like. But it’s vital we draw a line under the issue so a trusted motor finance market can continue to serve millions of families every year.”
Close Brothers follows suit with Lloyds’ FCA lashings
Close Brothers’ action follows that of Lloyds Banking Group, which owns Britain’s largest motor finance lender Black Horse, increasing provisions to £2bn on Monday.
Lloyds also condemned the compensation proposed by the FCA, arguing the scheme was neither proportional nor reasonable in ensuring customers received proper redress and failed to reflect borrowers’ “actual loss”.
BMW executives, facing liabilities exceeding £200m, have sought a meeting with Chancellor Rachel Reeves regarding concerns about the regulator’s compensation scheme, The Times reported.
The Chancellor attempted to steer the motor finance dispute earlier this year, but encountered resistance from the Supreme Court.
Reeves was refused permission to intervene in the case by the highest Court, and prior to the ruling, speculation mounted that the Chancellor was considering overturning an unfavourable judgment. The City had been bracing for a staggering bill of up to £44bn if the Supreme Court upheld the entirety of the Court of Appeal’s October 2024 ruling, sparking concerns about a total collapse in the car financing market and leaving consumers unable to secure essential loans.
Despite the new provision, Close Brothers maintains confidence in its CET1 ratio – a crucial measure of a lender’s financial health – standing at 13.8 per cent.
However, the additional fund is predicted to impact the CET1 by nearly 30 basis points, diminishing the expected benefit from the lender’s earlier divestment of its Winterflood arm this year.
